OECD Future of Productivity work. More details and background papers at oe.cd/productivity

1. THE FUTURE OF
PRODUCTIVITY
ANDREW WYCKOFF
DIRECTOR OF SCIENCE, TECHNOLOGY AND INNOVATION
BRUEGEL
9 July 2015, Brussels

2. 1. Productivity: now more than ever
2. Mind the Gap: the Breakdown of the
Diffusion Machine
3. Stimulating Diffusion
– Engaging in Trade / Integrating into GVCs
– Reallocating (misallocated) resources
– Boosting Innovation (absorptive capacity)
Structure of the presentation
2

3. PRODUCTIVITY: NOW MORE
THAN EVER

4. 4
4
Productivity (MFP) drives standards
of living…
4
Decomposition of cross-country differences in GDP per capita into their determinants, 2005
(United States = 100)
GDP PPP per capita TFP Human capital Physical capital Employment
United States 100.0 100.0 100.0 100.0 100.0
Canada 83.5 72.0 103.3 105.8 106.0
Japan 72.6 52.6 100.4 130.7 105.1
China 9.8 13.6 57.3 105.2 119.5
India 5.2 12.7 47.7 98.3 87.1
Brazil 20.5 29.3 70.1 103.1 96.8
Russian Federation 28.6 31.5 84.9 97.4 99.3
EU27 + EFTA 64.7 67.8 91.2 114.1 91.3
Total World 22.8 27.9 64.2 104.2 95.8
Source: OECD.

5. 5
…and productivity growth has slowed across
the OECD, even before the crisis.
Labour productivity growth since 1990
GDP per hour worked (China and India refer to GDP per worker)

6. Business investment has been slack…
Business investment in different cycles
Cyclical peak in OECD real business fixed investment=100
(date of peak indicated)
6
80
90
100
110
120
130
140
150
80
90
100
110
120
130
140
150
t 2 4 6 8 10 12 14 16 18 20 22 24 26 28
t=1973Q4 t=1981Q4
t=2000Q3 t=2008Q1
Quarters since the peak

7. …as has investment in KBC (intangibles)…
7
Source: Corrado et al. (2012)

8. …leading to diverging views on the Future
of Productivity.
8
http://blog.ted.com/the-future-of-work-and-innovation-robert-gordon-and-erik-brynjolfsson-debate-at-ted2013/

9. MIND THE GAP

10. 80
90
100
110
120
130
140
150
160
2001 2002 2003 2004 2005 2006 2007 2008 2009
Most advanced firms
(3.5% per annum)
All firms
(1.7%)
Other firms
(0.5% per annum)
Manufacturing Sector Services Sector
80
90
100
110
120
130
140
150
160
2001 2002 2003 2004 2005 2006 2007 2008 2009
Most advanced firms
(5.0% per annum)
All firms
(0.3% per annum)
Other firms
(-0.1% per annum)
Productivity of Frontier Firms and the Rest
“Frontier firms” corresponds to the average labour productivity of the 100 globally most productive firms in each 2-digit sector. On a rolling basis. “Non-frontier
firms” is the average of all other firms. “All firms” is the sector total. AAGR shown in parentheses. Source: Andrews, Criscuolo and Gal (2015), “Frontier firms,
technology diffusion and public policy: micro evidence from OECD countries ” mimeo

11. The Global Frontier versus the Others
Note: “Frontier firms” corresponds to the average labour productivity of the 50 globally most productive firms in each 2
digit sector in ORBIS. “Non-frontier firms” is the average of all other firms.

12. The Ageing of the Frontier

13. STIMULATING DIFFUSION

14. Diffusion is dictated by global connections,
reallocation and KBC (absorptive capacity).
Estimated frontier spillover (% pa) associated with a 2% point increase in
MFP growth at the global productivity frontier
Global connections Reallocation Knowledge-Based
Capital
14

15. ENGAGING IN TRADE /
INTEGRATING INTO GVCs

16. Participating in global value chains…..
Estimated gains to MFP growth associated with raising GVC
participation
Source: Saia, A., D. Andrews and S. Albrizio (2015).

17. 0
5
10
15
20
25
30
%
Gross exports of ICT goods and services Domestic value added of ICT goods and services in foreign final demand
0
1
2
3
4
Magnified
Source: OECD (2015), Digital Economy Outlook 2015, forthcoming.
Trade in ICT goods and services – gross exports and value added, 2011
Percentage shares of the world total
... as distinct from trade per se is important
because…

18. …collaboration with suppliers and clients
spurs innovation…
18
80
60
40
20
0
20
40
60
80
Suppliers Clients
Large firms
SMEs
As a percentage of product and/or process innovative firms
(2008-2010)
SOURCE: OECD, based on Eurostat (CIS-2010) and national data sources, June 2013.

19. …and exposes services to competition.
Services content of gross exports for G20 countries, percent,
2011
Source: OECD-WTO Trade In Value Added Database, June 2015.
0%
10%
20%
30%
40%
50%
60%
70%
SAU
IDN
MEX
KOR
ARG
CHN
RUS
ZAF
CAN
AUS
BRA
JPN
TUR
DEU
ITA
USA
IND
FRA
GBR
Domestic VA content Foreign VA content Gross service export share

20. REALLOCATE
(MISALLOCATED)
RESOURCES

21. Looking beyond the “mean” – to get resources
where they do the most good…
21
Source: Adapted from Bartelsman et al., (2008).

22. …because the share of start-ups is
declining in many OECD countries….
Share of start-ups among all firms
Note: As a percent of all firms in the total private business sector. Startups are firms aged from
0 to 2. Data for Japan refers to establishment in the manufacturing sector.
Source: Criscuolo, Gal and Menon (2015).

23. …and post-entry growth is a problem.
Source: Andrews, Criscuolo and Gal (2015).
How much higher would overall manufacturing sector labour productivity
be if NF firms were as productive and large as GF firms?
NF firms in Italy have productivity levels
close to the GF but they are relatively small

24. The importance of removing barriers to growth
so that firms can…
Post-entry growth - average size of young and old firms
24Source: Criscuolo, Gal and Menon (2015).

25. …scale, and afford to adapt technology that
enables integration into GVCs.
Use of enterprise resource planning (ERP) software
Percentage of enterprises in each employment size class: 2010 & 2014

26. Effective framework policies encourage the
growth of innovative firms…
Source: Andrews, Criscuolo and Menon (2014).
Additional capital attracted by an innovative firm
(patent stock increase by 10%, 2002-10)

27. …and make sure the workers find the
businesses that need their skills….
27Source: Adalet McGowan, M. and D. Andrews (2015b),

28. …which is affected by a variety of policies.
The probability of skill mismatch and public policies
28
Entry and Exit Labour mobility Education
Source: Adalet McGowan, M. and D. Andrews (2015b),

29. • Policies that promote efficient firm exit:
– Bankruptcy legislation that does not excessively penalise business
failure and regulations which don’t favour incumbents
• Policies that make labour mobility easier:
– Housing market policies that facilitate residential mobility.
– Employment protection legislation that does not impose too heavy or
unpredictable costs on hiring and firing.
• But also policies to help workers adapt to technological
change and cushion the costs of reallocation:
– Promotion of adult and lifelong learning.
– Well-designed social safety nets.
– Portable health and pension benefits.
29
Policies to reallocate scarce resources to
the most productive firms

30. KEEP THE INNOVATION
MACHINE RUNNING

31. Investment in public research matters…
Public R&D expenditure by type of research system
HERD and GOVERD, as a percentage of GDP, 2012, and total HERD and GOVERD in 2007
Source: OECD, Science, Technology and Industry Outlook 2014, based on OECD, MSTI Database, June
2014, www.oecd.org/sti/msti. http://dx.doi.org/10.1787/888933151601
0.0
0.2
0.4
0.6
0.8
1.0
1.2
%
HERD GOVERD Total HERD and GOVERD, 2007

32. …as does the mix of policies to induce
private investment...
Direct funding of business R&D and R&D tax incentives,
as a percentage of GDP, 2012
Source: OECD R&D Tax Incentive Indicators, www.oecd.org/sti/rd-tax-stats.htm
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
0.45
% Direct funding (grants, loans, procurement)… Indirect funding (R&D tax incentives) Indirect funding (no cost estimate) Total financial support, 2007…

33. Business investment in KBC and tangible assets
(as % of business sector value added, 2010)
Source: OECD calculations based on INTAN-Invest, Eurostat and multiple national sources. 33
0
5
10
15
20
25
30
35
%
Brand equity, firm-specific human capital, organisational capital R&D and other intellectual property products
Software and databases Non-residential physical assets
…but innovation is more than R&D.

34. Policies to keep the innovation engine
running
34
Est. frontier spillover (%per
annum) associated with 2% point
increase in MFP growth at the
frontier
Higher and more efficient public
investment in basic research.
• Role for international co-operation?
Enhanced U/I collaboration:
• funding, personnel, open science
Public investment to support private
investment in infrastructure
• Broadband, data
Innovation Investment bundles
• Beyond R&D to KBC
Review Innovation Policy Portfolios
• Too generous R&D tax credits?
• 21st Century IPR

35. • OECD (2015), “The Future of Productivity”. OECD, Paris
• Adalet McGowan, M. and D. Andrews (2015a), “Labour Market Mismatch and
Labour Productivity: Evidence from PIAAC Data”, OECD Economics
Department Working Papers, No. 1209.
• Adalet McGowan, M. and D. Andrews (2015b), “Skill Mismatch and Public Policy
in OECD Countries”, OECD Economics Department Working Papers, No. 1210.
• Andrews, D., C. Criscuolo and P. Gal (2015), “Frontier Firms, Technology
Diffusion and Public Policy: Micro Evidence from OECD Countries”, OECD
Mimeo, forthcoming.
• Calvino, F., C. Criscuolo and C. Menon (2015), “Cross-country Evidence of
Start-Up Dynamics”, OECD Science, Technology and Industry Working Paper.
• Criscuolo, C., P. Gal and C. Menon (2014), “The Dynamics of Employment
Growth: New Evidence from 18 Countries”, OECD Science, Technology and
Industry Policy Papers, No. 14.
• Saia, A., D. Andrews and S. Albrizio (2015), “Public Policy and Spillovers From
the Global Productivity Frontier: Industry Level Evidence”, OECD Economics
Department Working Papers, No. 1238.
The following reports provide detail on the
results
35

36. Thank you
36
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Website: www.oecd.org/sti
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Contact: Andrew.Wyckoff [at] oecd.org
Read more about our work
The Future of Productivity
http://www.oecd.org/sti/ind/global-dialogue-on-the-future-of-productivity.htm